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Should I Watch Airbnb Stock Or Wait For It To Drop?

Should I Watch Airbnb Stock Or Wait For It To Drop?

Last Thursday, December 10, Airbnb (NASDAQ: ABNB) finally floated on the Nasdaq exchange following months of anticipation. IPO’ing at $68 per share, by the time it became available to retail investors it was sitting somewhere closer to $150. With a valuation of $86 billion, the company was worth significantly more than the $18 billion it was valued at in April.

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However, since its IPO, its stock has fallen more than 10% as investors begin to sell, while some analysts have even started assigning ‘Sell’ ratings. With that in mind, we discuss whether Airbnb is still a good investment?

 

The bull case for Airbnb

Despite the obvious overpricing in the middle of a pandemic that has obliterated the travel sector, there are 5 strong bull cases for Airbnb:

1. Large customer base: Airbnb has 4 million hosts worldwide (86% from outside the U.S.), and 5.6 million active listings. 

2. Finances: The company saw rapid revenue growth in the last 3 years, with total revenue hitting $2.56 billion, $3.65 billion, and $4.81 billion in 2017, 2018, and 2019 respectively.

3. COVID-19: Pandemics hurt, which is why revenue fell 32% YoY in the first 9 months of this year. However, Airbnb recovered incredibly well, significantly cut costs, refocused on domestic stays, and has managed to pull out a quarterly profit during the worst economic crisis the travel sector has ever faced. 

4. Host Access To Shares: What better way to ensure long-term loyalty from investors than to offer 9.2 million shares in a direct-offering program to hosts who listed on the site in 2019 and 2020?

5. Growth: Airbnb estimates its total addressable market to be $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences.

 

The bear case for Airbnb

We’ve already touched on the most bearish case of all, which is the impact of the COVID-19 pandemic on the travel industry; recent estimates put global losses for the sector in the trillions — with a T. However, Airbnb has performed well, relatively speaking:

  • Q3 net income: $219 million
  • Q3 revenue: $1.34 billion (-19% YoY)
  • 2020 net loss (as of September 30): $697 million
  • 2020 revenue (as of September 30): $2.52 billion

However, this is a rarity, as Airbnb has never posted an annual profit since its launch in 2008. 

That is not the only issue though, as it has recorded losses of more than $1 billion in the past year with a negative free cash flow of $1.2 billion. Despite all this, it is still very expensive, valued at about three times its rivals such as Expedia. 

Airbnb is also trading at more than 30 times its 2020 revenue through September. 

 

So, should I watch Airbnb stock?

Airbnb was always going to be a manic IPO, which is one of the reasons that it is so hard to accurately price right now. It is also why we tend not to add recent IPOs to our shortlist here at MyWallSt, as we like to wait and see how the company performs over a number of quarters and allow volatility to die down. 

One huge bull in favor of Airbnb as a long term strategy is the fact that it has weathered this pandemic incredibly well, even managing to eke out a minor profit — no small feat in these times. With such a recognizable brand and a massive total addressable market, the future does look bright for Airbnb, and for true believers who are not risk-averse, it could be a great investment now. However, it is always best to let the dust settle a bit so you can gain a clear picture. 

 

Quickfire round:

  1. Is Airbnb a publicly-traded stock?

    Yes, Airbnb is a publicly-traded company after it IPO’d on the Nasdaq exchange on Thursday, December 10, 2020. 

  2. Is Airbnb a profitable company?

    Airbnb has not turned an annual profit since its launch in 2008 and warned that this will likely also be the case in 2020, despite it being profitable in the third quarter.

  3. What does the Airbnb logo mean?

    The logo itself is a combination of four simple symbols: a head to represent people, a location icon to represent place, a heart for love, and then an A for Airbnb.

 

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Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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